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How are these objectives achieved?
(Excerpt
- Water Street Advisers Form ADV Part 2–Schedule
F–Methods of Investment Analysis 4(a))
The key to applying a value-investing strategy across the
breadth of the $50 trillion global market for investment securities is in
in not taking on the research cost involved in selecting individual securities, and I avoid this expense by investing in managers that have already absorbed it.
Mutual funds are managed investment portfolios of securities that offer public shares. Based on characteristics of past investment performance, I select for that small segment of managers from within the mutual funds market -- about 1% of the fund-manager population over the last eighteen years -- that will be pursuing a value-investing strategy at any given point in time.
This selection process arises from an
insight regarding the characteristics of the funds market that runs
counter to conventional wisdom -- a crucial, although
simple, error-of-omission in existing methods for identifying differences in mutual fund performance -- that allows the identification of these value investors on the basis of relative past-period investment performance.
Because of this, my selection methodology is unique and
novel -- and the proprietary processes that underlie it are
protected by patent.
These processes find
investment managers
based on the following (5) selection criteria:
Only the conservative
win -- The funds
market is unique within U.S. markets for public securities in that
differences in relative performance between securities within a
market sector are demonstrated most dramatically in terms of
differences in risk, not return.
Size
matters -- In the funds
market, changes in investor demand translate as changes to a
fund’s size -- not as changes to its price.
Fund-managers
talk -- The funds market is like many others based on a
specialized technical skill – the practitioner population is a
small colloquial group that tends to know one another and talk.
Dogs will remain dogs regardless of
circumstance -- The
funds market is categorized by a handful of managers pursuing
investment objectives that have never been competitive
regardless of market conditions.
Cheapest is
best -- The market is populated with funds whose
expense structures support activities not related to investment
return, and are paid for from that return, either as sales or management fees.
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